What is LIRP?
A Life Insurance Retirement Plan (LIRP) is a financial strategy that leverages the cash value component of certain life insurance policies, such as Indexed Universal Life (IUL) or Whole Life Insurance, to provide a supplemental source of retirement income. This method is popular for individuals seeking a tax-advantaged way to save for retirement, in addition to traditional retirement accounts like IRAs and 401(k)s.
A LIRP functions by accumulating cash value within a life insurance policy. Over time, this cash value can grow tax-deferred, depending on the performance of the policy’s investments. Upon retirement, policyholders can access this accumulated cash value through tax-free loans or withdrawals, supplementing other retirement income sources.
One key advantage of a LIRP is the tax-free status of policy loans, as they are not typically considered taxable income. This feature makes LIRPs an attractive option for individuals in higher tax brackets. However, it’s essential to consider that the cost of insurance and policy fees can impact the growth of the cash value, so LIRPs are best suited for long-term strategies.
As with any financial tool, LIRPs should be considered in the context of a broader financial plan. Consulting with a financial professional can help determine if a LIRP is a suitable component of a comprehensive retirement strategy.
